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Any legislation to reform the sustainable growth rate (SGR) formula should include a change in the physician fee schedule, according to an article in the journal Health Affairs.

The next proposed SGR fee cut is scheduled to take effect on April 1, 2015, and would result in a 21.2% cut in physician fees, unless Congress steps in with another SGR “fix” or permanent repeal.

An attempt to replace the SGR—the "SGR Repeal and Medicare Provider Payment Modernization Act of 2014"— had bipartisan support in both the House and Senate last year, but ultimately failed because legislators couldn’t agree on how to pay for the fix.

That legislation would have provided physicians with two payment “pathways”—one for those primarily paid by a fee-for-service reimbursement model and the other for those physicians “significantly” involved in a value-based alternative payment model, such as an accountable care organization.

Under this SGR fix, physicians in both pathways would have seen 0.5% annual fee increases from 2014 to 2018. From 2019 through 2023, physicians in alternative payment models would receive a 5% bonus on their Medicare payments, and after fee-for-service ends, physicians would received annual fee increases of 0.5%, while those in alternative payment models would see 1% annual increases.

“The 2014 SGR fix, which failed to become law last year, contained important, though incremental, changes to current efforts to introduce a value-based component into fee-for-service Medicare and to promote alternative, value-based payment models,” wrote James Rexchovsky, PhD, and colleagues from Mathematica Policy Research, a Washington, D.C. consulting firm. However, they added, one piece missing from the legislation was a failure to revise the “flawed” Medicare physician fee schedule.

The authors pointed out that the Medicare reimbursement physicians receive is largely based on relative value scales, but that those relative values have “become increasingly distorted over time” and overvalue specialty care services while undervaluing preventive care.

Physicians may find it to their benefit to continue receiving fee-for-service payments while focusing on providing high-cost services if this situation isn't corrected, wrote Reschovsky and his colleagues. Since fee-for-service remains the base payment method under alternative payment models, "[c]orrecting valuations would also ensure the proper operation of alternative payment models," the authors wrote, adding that "inaccurately valued services could continue to distort clinical decisions at the point of care among those participating in alternative payment models, reducing cost and quality improvement potential—particularly if physicians earn fee-for-service income for services they personally render but share in the rewards or penalties of their organization’s cost performance.”

Correcting these fee valuations will be a “substantial and controversial undertaking,” the authors concluded. “But it is one that is vitally important to the SGR fix’s prospects for success and requires greater focus and support.”